Isa allowance could increase to £11,532 from next April following a rise in the cost of living

The maximum amount savers can put in an Isa is expected to rise to around £11,532 from next April, following rises in the cost of living.

September’s Consumer Prices Index (CPI) figure, announced yesterday, was 2.2 per cent, down from 2.5 per cent in the previous month. It means Isa allowances could rise from £11,280 to £11,532 next April.

Inflation is also a factor in deciding state pension payouts. The basic state pension increases by the highest of rises in average UK earnings, the CPI or 2.5 per cent.

Allowance: A rise in the capacity of an Isa is expected next year

Because inflation was lower than the 2.5 per cent guarantee, pensioners should expect at least a 2.5 per cent rise in the state pension from next April. An announcement confirming this is expected in December.

However, despite a fall in inflation, savers are seeing the value of their nest-eggs drop.

Inflation as measured by the retail prices index (RPI) — which, unlike the CPI, includes the cost of housing — stood at 2.6 per cent for the year to September, down from 2.9 per cent.

Basic rate taxpayers need to earn 3.25 per cent before tax (2.6 per cent after tax) merely to retain the spending power of their savings. Higher rate payers need an impossible 4.33 per cent before tax.

At these rates, the value of your savings as a basic rate taxpayer is dropping by £3.60 for every £1,000 in the account.

The decline for those who stick to High Street accounts is worse. At a top rate of 2 per cent after tax (2.5 per cent before) the purchasing power of their money drops by £6 per £1,000 each year.

Even non-taxpayers are missing out. There is no respite for taxpayers willing to tie up their money for a year.

The top one-year, fixed-rate bond from M&S Money pays 2.48 per cent after tax (3.1 per cent before tax).

INFLATION BUSTING ACCOUNTS

As of today, there is a choice of 266
standard savings accounts and Isas that basic rate taxpayers can choose
from to negate the impact of tax and inflation, and 150 for higher rate
taxpayers, according to research from comparison website Moneyfacts.